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Fiduciary Liability Insurance Policy Information

Fiduciary Liability Insurance

Fiduciary Liability Insurance. Fiduciary liability insurance is designed to protect corporations against fiduciary liability claims that pertain to the mismanagement of the benefit plans they offer their employees. This policy provides coverage for legal fees that would be associated with error and breach of fiduciary duty claims.

The Employee Retirement Income Security Act (Pension Reform Act of 1974) has greatly increased the responsibilities of fiduciaries or trustees of employee benefit or retirement plans.

Many insurance carriers now offer insurance policies to protect both the plans and individuals acting as trustees or fiduciaries from lawsuits alleging "wrongful acts" (errors or omissions in the handling of investment funds, for example).

ISO offers a standardized form, but most coverage is provided on company-designed forms. The Pension Reform Act allows for such insurance; but if the premiums are paid out of the retirement plan's funds, then the policy must permit recourse by the insurer against any negligent fiduciary.

Most fiduciary liability insurance policies are written with a minimum deductible of $1,000.

Fiduciary liability insurance helps protect businesses against claims resulting from a breach in fiduciary duty - with rates as low as $47/mo. Get a fast quote and your certificate of insurance now.

Below are some answers to commonly asked Fiduciary Liability insurance questions:

How Much Does Fiduciary Liability Insurance Cost?

Fiduciary liability insurance costs vary widely and range from under $50 into the thousands per month - based on the type of business, location, industry, size, company financials and more.

What Is A Fiduciary?

A fiduciary can be defined as any person that is included in documents that outline employee benefit plans, as well as any individual who has discretionary authority to make decisions regarding the management and administration of the plan or the assets that the plan provides.

Examples of fiduciaries include:

  • Administrators of employee benefit plans
  • Benefit plan sponsors (typically employers)
  • Committees that invest in benefit plans
  • Directors and officers
  • Plan trustees

Fiduciaries are responsible for choosing advisors and investments, reducing expenses, and strictly adhering to the benefits plan. They are obligated to act only in the interest of the participants of employee benefits plans, as well as the beneficiaries of the plans - not in the interest of the company that offers the plans.

The Employee Retirement Income Security Act of 1974 (ERISA) established stringent fiduciary conduct standards. If a fiduciary breaches the obligations and responsibilities that are established by the ERISA, he or she may be held liable and may be legally required to personally compensate the benefit plan in question for any losses that may have occurred.

Should the Department of Labor (DOL) bring an action against a fiduciary, he or she may also face civil penalties.

Given the responsibilities that are associated with being a fiduciary, those who are tasked with this role face a great deal of liability and fiduciary litigation has been on the rise.

Being a fiduciary comes with a lot of responsibilities, and in order to protect oneself from potential liability claims, the right type of insurance coverage is vital. That's where fiduciary liability insurance comes in.

What Does Fiduciary Liability Insurance Cover?

Fiduciary Duty

As mentioned, fiduciary liability insurance is a form of coverage that is specifically designed to protect a business from any liability claims, such as errors or breach of fiduciary duty. This type of policy covers the costs that are associated with legal fees that a fiduciary may require to defend him- or herself against such claims.

Fiduciary liability insurance covers the company that holds the policy, as well as the employees of the company who are considered fiduciaries. This policy does not cover any third-parties, such as external advisors or administrators of employee benefit plans.

If a company uses external advisors, administrators, or consultants for their benefit plans, those individuals must secure their own fiduciary liability coverage. Furthermore, if a company does employ external resources to manage and administer the functions of their benefit plans, the company that holds the fiduciary liability policy is not excluded from any associated liabilities.

Breaches of fiduciary that are typically covered by a standard fiduciary liability insurance policy include:

  • Any mistakes that are made while administering plans; ineffective enrolment or terminations of plans that would result in the incorrect amount of or loss of benefits.
  • Automatic coverage for most newly created or acquired plans.
  • Conflicts of interest and prohibited transactions.
  • Counseling errors that are made when benefit plans are administered that result in the incorrect amount of or loss of benefits.
  • Coverage for challenges to settlor functions.
  • Errors or omissions in plan administration.
  • Failure to administer the plan according to plan documents.
  • Improper advice or counsel.
  • Imprudent investment of assets or lack of investment diversity.
  • Imprudent selection and failure to monitor third-party service providers.
  • Inappropriate changes in benefits.
  • Offering inappropriate employee retirement plan benefits, whether that advise is a mistake or on purpose.
  • Penalties and fees levied by the IRS or DOL under a voluntary settlement program.
  • Perilous investments in a pension plan.
  • Wrongful denial of benefits.
  • Wrongful denial or improper change in benefits.

These are some examples of the type of situations that a fiduciary liability insurance policy covers. Of course, the specifics regarding coverage depend on the specifics of the policy.

Who Needs Fiduciary Liability Insurance Coverage?

Not all business owners need to invest in a fiduciary liability insurance policy; for example, small business operations that do not offer benefits packages to their employees would not need this type of coverage. However, any business that offers any type of benefits to their employees will want to consider investing in this type of specialized coverage.

While a fiduciary liability insurance policy is not required by the ERISA or any statute set forth by the federal government, having this type of coverage in place is strongly recommended. Just like any other type of insurance coverage that is not required, it's always better to be safe than sorry; especially since the processes that are associated with employee benefit plans can be quite complex and confusing.

Even companies that are meticulous with the management and administration of their employee benefit plans can make mistakes, and those mistakes can result in legal issues and serious financial losses.

If you are a business owner or officer that offers any of the following benefit plans to your employees, you should seriously consider protecting yourself with a fiduciary liability insurance policy:

  • 401(k) or 403(b) retirement plans
  • Dental insurance
  • Medical/health insurance
  • Stock options
  • Vision insurance

Why Should A Business Buy Fiduciary Liability Insurance?

The primary reason why business owners should carry a fiduciary liability insurance policy is to protect themselves from any liability claims that may arise. The cost of legal defense fees and having to settle or losing to a plaintiff can be exorbitant.

These expenses can be so significantly in fact, that they can result in serious financial hardship that may potentially result in the loss of your business.

Fiduciary Liability Insurance - The Bottom Line

The business world has become very litigious. If you are a business owner who offers benefit plans to your employees, investing in fiduciary liability insurance coverage is one of the the best ways to protect yourself from serious losses.

Types Of Small Business Insurance - Requirements & Regulations

Perhaps you have the next great idea for a product or service that you know will appeal to your local area. If you've got a business, you've got risks. Unexpected events and lawsuits can wipe out a business quickly, wasting all the time and money you've invested.

Operating a business is challenging enough without having to worry about suffering a significant financial loss due to unforeseen and unplanned circumstances. Small business insurance can protect your company from some of the more common losses experienced by business owners, such as property damage, business interruption, theft, liability, and employee injury.

Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a loss or recovering with minimal business interruption and financial impairment to your company's operations.

Small Business Information

Insurance is so important to proper business function that both federal governments and state governments require companies to carry certain types. Thus, being properly insured also helps you protect your company by protecting it from government fines and penalties.

Small Business Insurance Information

In the business world, there are many risks faced by company's every day. The best way that business owners can protect themselves from these perils is by carrying the right insurance coverage.

The The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.

Commercial insurance is particularly important for small business owners, as they stand to lose a lot more. Should a situation arise - a lawsuit, property damage, theft, etc. - small business owners could end up facing serious financial turmoil.

According to the SBA, having the right insurance plan in place can help you avoid major pitfalls. Your business insurance should offer coverage for all of your assets. It should also include liability and casual coverage.

Types Of Small Business Insurance

Choosing the right type of coverage is absolutely vital. You've got plenty of options. Some you'll need. Some you won't. You should know what's available. Once you look over your options you'll need to conduct a thorough risk assessment. As you evaluate each type of insurance, ask yourself:

  • What type of business am I running?
  • What are common risks associated with this industry?
  • Does this type of insurance cover a situation that could feasibly arise during the normal course of doing business?
  • Does my state require me to carry this type of insurance?
  • Does my lender or do any of my investors require me to carry this type of policy?

A licensed insurance agent or broker in your state can help you determine what kinds of coverages are prudent for your business types. If you find one licensed to sell multiple policies from multiple companies (independent agents) that person can often help you get the best insurance rates, too. Following is some information on some of the most common small business insurance policies:

Business Insurance Policy Type What Is Covered?
General Liability InsuranceWhat is covered under commercial general liability insurance? It steps in to pay claims when you lose a lawsuit with an injured customer, employee, or vendor. The injury could be physical, or it could be a financial loss based on advertising practices.
Workers Compensation InsuranceWhat is covered under workers compensation insurance? This type of insurance protects a business and its owner(s) from claims by employees who suffer a work-related injury, illness or disease. Workers comp typically provides the injured employee with benefits to cover medical expenses, a portion of his/her lost wages, rehabilitation costs if applicable, and permanent partial or permanent total disability.
Product Liability InsuranceWhat is covered under product liability insurance? I pays an injured party's settlement or lawsuit claim arising from a defective product. These are usually caused by design defects, manufacturing defects, or a failure to provide adequate warning or instructions as to how to safely use the product.
Commercial Property InsuranceWhat is covered under business property insurance? General liability policies don't cover damages to your business property. That's what commercial property insurance is for. It protects all of the physical parts of your business: your building, your inventory, and your equipment, giving you the funds you need to replace them in the event of a disaster. If you work from home, you might consider a Home Based Business Insurance policy instead.
Business Owners Policy (BOP)What is covered under a business owners policy (BOP)? This is a policy designed for small, low-risk businesses. It simplifies the basic insurance purchase process by combining general liability policies with business income and commercial property insurance.
Commercial Auto InsuranceWhat is covered under business auto insurance? This type of insurance covers automobiles being used for business purposes. This could include a fleet of business-only vehicles or a single company car. In some cases it might cover your car or your employee's car while they're being used for business. These policies have much higher limits, ensuring you can cover your costs if one of these vehicles gets into an accident.
Commercial Umbrella PoliciesWhat is covered under commercial umbrella insurance? This type of policy is a sort of "gap" insurance. It covers your liability in the event that a court verdict or settlement exceeds your general liability policy limits.
Liquor Liability InsuranceWhat is covered under liquor liability insurance? It covers bodily injury or property damage caused by an intoxicated person who was served liquor by the policy holder.
Professional Liability (Errors & Omissions)What is covered under professional liability insurance? This type of business insurance is also known as malpractice oe E&O. It covers the damages that can arise from major mistakes, especially in high-stakes professions where mistakes can be devastating.
Surety BondWhat is covered under surety bonds? Bonding is a contract where one party, the SURETY (who assures the obligee that the principal can perform the task), guarantees the performance of certain obligations of a second party, the PRINCIPAL (the contractor or business who will perform the contractual obligation), to a third party, the OBLIGEE (the project owner who is the recipient of an obligation).

Who Needs General Liability Insurance? - Virtually every business. A single lawsuit or settlement could bankrupt your business five times over. You might also need this policy to win business. Many companies and government agencies won't do business with your company until you can produce proof that you've obtained one of these policies.

Business Insurance Required by Law
Small Business Commercial Insurance

If you have any employees most states will require you to carry worker's compensation and unemployment insurance. Some states require you to insure yourself even if you are the only employee working in the business.

Your insurance agent can help you check applicable state laws so you can bring your business into compliance.

Other Types Of Small Business Insurance

There are dozens of other, more specialized forms of small business insurance capable of covering specific problems and risks. These forms of insurance include:

  • Business Interruption Insurance
  • Commercial Flood Insurance
  • Contractor's Insurance
  • Cyber Liability
  • Data Breach
  • Directors and Officers
  • Employment Practices Liability
  • Environmental or Pollution Liability
  • Management Liability
  • Sexual Misconduct Liability

Whether you need any or all of these policies will depend on the results of your risk assessment. For example, you probably don't need an environmental or pollution policy if you're running an IT company out of a leased office, but you would need data breach and cyber liability policies to fully protect your business.

Also learn about small business insurance requirements for general liability, business property, commercial auto & workers compensation including small business commercial insurance costs. Call us (855) 767-7828.

Additional Resources For Small Business Insurance

Protect your company and employees with the right commercial insurance policies. Read informative articles on small business insurance coverages - and how they can help shield your company from legal liabilities.

Small Business Commercial Insurance

Your small business faces many potential disasters including: fire, floods, theft, equipment breakdown, lawsuits from clients or customers and current & former employees. Any many other risks you haven't even thought about.

A small business commercial insurance program should provide protection for both larger and smaller disasters. The obvious things like fire, flood and theft most business owners think about... but what if a hacker infects your computers with a virus - and files containing private customer information like credit card and Social Security numbers are stolen?

Who is going to pay to fix your customers credit rating etc...? Will your insurance pay for the cost? You need to know that.

Your commercial insurance program should cover events that can close down your company, or cause it to lose revenue. Anything less than that is not enough coverage. Commmercial insurance doesn't cover everything, and all policies have exclusions and limits.

You need a written plan that allows you to get your operations back up and running as quick as possible.

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